What a share block scheme is, and why the structure changes everything
In a share block scheme the resident does not own the flat, the house or the portion of land. The company owns or leases the entire immovable property, and the resident owns shares in that company. Section 7(1) of the Share Blocks Control Act 59 of 1980 requires that the main object and business of a share block company be to operate a share block scheme in respect of immovable property owned or leased by it. Section 7(2) then requires the company's articles to entitle a member to the use of a specified part of that property, on the terms and conditions contained in a use agreement entered into between the company and that member.
The shareholder therefore receives a share certificate or electronic shareholding record, membership rights in the company, and a contractual right of occupation and use. What the shareholder does not receive is a sectional title deed for the particular flat or house. Section 10 puts this beyond argument: a share in a company that operates a share block scheme confers a right to or an interest in the use of immovable property, and a share that brings a scheme into operation confers the same vote as every other share of the company.
For insurance purposes this single fact governs everything that follows. The insurable interest in the building sits with the company, because the company is the owner or the lessee. A shareholder who instructs a broker to arrange buildings cover on their own flat in a share block scheme is asking to insure something they do not own. Section 4 also creates a presumption that a company is operating a share block scheme where its members hold rights of use in its immovable property, which means a scheme can fall under the Act even where nobody involved has ever described it that way.
Every share block company is also a community scheme. Section 1 of the Community Schemes Ombud Service Act 9 of 2011 defines a community scheme to include, expressly, a share block company. The company must therefore register with the Community Schemes Ombud Service, file its governance documentation and annual returns, pay the prescribed levies, and accept that disputes between it and its members, including disputes about its insurance decisions, can be referred to adjudication rather than to court.
Source: Share Blocks Control Act 59 of 1980 sections 4, 7 and 10; Community Schemes Ombud Service Act 9 of 2011 section 1.
Section 19: the insurance duty rests on the directors personally
Section 19(1) provides that the directors of a share block company shall ensure that the immovable property of the company is insured against damage in accordance with any relevant resolutions passed by its members at general meetings of the company. Section 19(2) then provides that if the company or any member suffers damage as a result of a failure to comply with subsection (1), the persons who were directors at the time of the failure are jointly and severally liable to compensate the company or the member, as the case may be, for the damage it or he suffered. Section 19(3) offers a single, narrow escape: a director is not liable if it is proved that he was unaware of the failure and was unable to prevent it.
Read carefully, section 19 sets no replacement value standard, no schedule of prescribed perils and no minimum sum insured. The standard is whatever the members resolved at a general meeting. That is a materially weaker statutory floor than a sectional title scheme enjoys, and it makes the members' resolution the single most important document in the file. Where the last resolution is a decade old, framed in rand amounts that no longer approximate the cost of rebuilding, or cannot be located at all, the directors are exposed on both sides at once: they may be complying with an inadequate resolution, or failing to comply with a resolution nobody can produce.
The exposure is also unusually direct. A member who suffers loss does not have to prove a breach of a general fiduciary duty, or work through the Companies Act, or show dishonesty. The member has a statutory claim against the individuals who were directors at the relevant time, and the burden under subsection (3) sits on the director to prove both ignorance and powerlessness. That is a difficult combination to establish for anyone who attended the meetings at which the schedule was, or was not, discussed.
What a defensible section 19 record looks like:
- A current members' resolution that describes what must be insured, on what basis and to what value, rather than a resolution that simply notes that insurance is in place
- An independent replacement valuation that supports the sum insured the resolution contemplates
- A policy schedule reconciled item by item against that resolution, with any divergence explained in writing
- A standing agenda item at every annual general meeting at which the sum insured, the valuation date and the perils covered are put to the members afresh
- Minutes recording the insurance decision, the information the board relied on and the reasoning, because the record of a considered decision is itself part of the defence
- A written handover to incoming directors, since section 19(2) attaches to the persons who were directors at the time of the failure
Source: Share Blocks Control Act 59 of 1980 section 19(1) to (3).
Who insures what: the company, and the shareholder
Because the company owns or leases the whole property, the company insures the buildings, the structure, the common areas, the shared plant and the infrastructure, and it carries the liabilities that attach to occupying and controlling that property. The shareholder insures what is genuinely theirs: their contents, the fixtures and internal improvements they have installed and are responsible for under the use agreement, their personal liability, and any obligation the use agreement transfers to them.
The dividing line is set by the use agreement, not by convention and not by analogy to sectional title. Section 7(2) makes the use agreement the instrument that defines the shareholder's rights and obligations in respect of the specified part they occupy, and section 7(3) requires a copy of every signed use agreement to be kept at the property or at the address notified to the Registrar. Where an agreement makes the shareholder responsible for internal repairs, for particular components such as geysers, plumbing within the unit or fitted appliances, or for damage arising from their own occupation, that allocation has to be reflected on both sides of the programme.
Two failure modes recur. In the first, the company and the shareholder both assume the other is covering the internal fittings, and neither is. In the second, the shareholder buys a household buildings policy on a property they do not own, pays for it for years, and discovers at claim stage that they had no insurable interest in the structure. Both are avoidable by reading the actual use agreement before renewal, and both are more common in older schemes where the original documentation has never been revisited.
Typically insured by the company, not by the shareholder:
- The building or buildings, foundations, roof, external walls and structural elements
- Common areas, entrance halls, lifts, stairwells, corridors and parking structures
- Perimeter walls, fencing, gates, gate motors and access control equipment
- Boilers, pumps, geysers serving multiple units, and shared water and electrical reticulation
- Generators, inverters, solar photovoltaic installations and battery storage
- Swimming pools, laundries, clubhouses, offices and the company's own contents and equipment
- Closed-circuit television, fibre infrastructure and shared communications equipment
- The company's public liability, employer liability and directors' exposures
Source: Share Blocks Control Act 59 of 1980 section 7(2) and (3); the scheme's use agreements and articles.
Read our body corporate and sectional title insurance guide →
Maintenance, the levy fund and the insurance premium
Section 13(1) requires a share block company to establish and maintain a levy fund sufficient, in the opinion of its directors, for the repair, upkeep, control, management and administration of the company and of the immovable property, for rates and taxes and other local authority charges, for electricity, gas, water, fuel, sanitary and other services, for the covering of any losses suffered by the company, for the payment of any premiums of insurance, and for the discharge of any other obligation of the company. Insurance is therefore a named, statutory charge on the levy fund, not a discretionary line item.
Section 13(2) provides that, unless the memorandum, articles or an agreement between the company and its members says otherwise, every member contributes monthly in the proportion of the number of that member's shares to the total issued shares. Section 13(3) requires contributions to be deposited into a separate bank or building society account, or entrusted to a practitioner or an estate agent in that capacity, and section 13(5) requires the directors to keep accounting records that fairly reflect and explain the money received and spent.
Where the levy is held down to keep monthly costs attractive, the consequences arrive in the same order every time: deferred maintenance, an ageing electrical and water reticulation, an insurer survey with requirements that cannot be funded, and eventually a premium loading, a restricted wording or a declinature. A levy fund set at a level that cannot fund both the premium and the maintenance obligations in section 13(1) is itself evidence that the directors' section 19 duty is under strain.
Section 14(1) is the related constraint. A share block company may not increase its loan obligation or encumber any of its assets without a resolution of at least 75 per cent in number of the members entitled to vote, holding in aggregate at least 75 per cent of the total votes of those members, excluding the share block developer. A board that intends to borrow to fund a major repair, a roof replacement or an uninsured shortfall cannot simply resolve to do so.
Source: Share Blocks Control Act 59 of 1980 sections 13(1) to (5) and 14(1) to (3).
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Material damage, replacement value and the average clause
The building should be insured at new replacement value, including demolition and debris removal, professional fees, and the cost of complying with current building regulations and municipal requirements when rebuilding. Nothing in the Share Blocks Control Act says so. That standard has to be adopted by the members in the section 19 resolution, and then maintained.
This is where share block schemes sit at a real disadvantage. A sectional title body corporate must insure to replacement value under section 3(1)(h) of the Sectional Titles Schemes Management Act 8 of 2011, must obtain a professional replacement valuation at least every three years under Prescribed Management Rule 23(3), and enjoys the protection of Prescribed Management Rule 23(1)(c), which prevents an average clause being applied to the buildings as a whole. A share block company has none of those three protections. If the sum insured is less than the replacement value at the time of loss, the insurer may apply average in full and pay only the proportion that the sum insured bears to the true value.
Many share block schemes are older inner city and coastal buildings, which compounds the problem. Rebuilding an older structure to current standards is frequently far more expensive than its market value or its book value suggests, and a sum insured anchored to either of those figures will be short. Adopting the sectional title three-year valuation cycle as internal policy, and index-linking annually in between, is a defensible governance decision even though no statute compels it.
Sasria special risks cover deserves a specific check. Riot, strike, civil commotion, public disorder, labour disturbance and terrorism are excluded from conventional material damage policies and are covered only under a Sasria coupon attached to the underlying policy. A scheme without a current coupon has no cover for those perils, and its sum insured under the coupon should track the underlying material damage sum insured rather than drifting behind it.
Perils and extensions worth confirming on a share block policy:
- Fire, lightning, explosion, storm, flood and impact as the base fire section
- Water damage and the bursting or overflowing of tanks, apparatus and pipes, which drives a high proportion of claims in older multi-storey buildings
- Sasria special risks by way of a current coupon attached to the underlying policy
- Theft and malicious damage, including copper cable, solar panel, battery and common-area equipment theft
- Machinery breakdown and electronic equipment for lifts, pumps, generators, inverters and access control
- Loss of levy income or increased cost of working where units become uninhabitable after a loss
- Glass, money, accidental damage, public supply and subsidence extensions where the building's age and location warrant them
Source: Sectional Titles Schemes Management Act 8 of 2011 section 3(1)(h) and Prescribed Management Rules 23(1)(c) and 23(3) (for comparison); Sasria SOC Limited coupon requirements.
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Liability for property the company owns and controls
A share block company is the owner or lessee of the whole property and the occupier of everything outside the parts allocated under use agreements. Shareholders, their families, tenants, domestic staff, contractors, couriers and visitors move through that property daily. Public liability cover responds to legal liability for third-party bodily injury, illness, death or property damage arising from the company's premises or activities: a fall on a wet common stairwell, a lift malfunction, an injury at a pool or laundry, a falling branch or piece of masonry, an electric fence or gate motor injury, or damage to a vehicle at an access point.
No statutory minimum limit applies to a share block company. A sectional title body corporate must carry at least R10 million for any one claim and in total for any one period of insurance under Prescribed Management Rule 23(6). That figure is a sensible reference point rather than a ceiling, and a share block scheme should weigh it against the number of units, the height and age of the building, visitor volumes, whether any part of the ground floor is let for retail or commercial use, and its own claims history.
Where the company employs a caretaker, cleaners, gardeners, security staff or a building manager, it must register with the Compensation Fund and pay assessments under the Compensation for Occupational Injuries and Diseases Act 130 of 1993. Registration limits common-law claims by employees, but employer liability cover addresses exposures falling outside the statutory scheme. Where staff are supplied by a labour broker or a managing agent, the contractual allocation of that risk has to be read rather than assumed, and every contractor working on the property should produce a current certificate of insurance and a valid letter of good standing before appointment.
Source: Compensation for Occupational Injuries and Diseases Act 130 of 1993; Prescribed Management Rule 23(6) (as a sectional title reference point).
Read our public liability insurance guide →
Fidelity cover: mandatory, and calculated from the balance sheet
Because a share block company is a community scheme, Community Schemes Ombud Service Regulation 15 applies to it in full. The scheme must insure against the loss of money belonging to it, or for which it is responsible, sustained through fraud or dishonesty committed by an insurable person: a scheme executive, an employee or agent with control over the scheme's money, a managing agent, or a contractor or employee acting under a managing agent's direction with access to those funds. This is the one insurance obligation a share block company carries that is imposed directly by statute rather than by its own members' resolution.
Two requirements are routinely missed. The policy must pay within a reasonable period once reasonably satisfactory proof of loss has been provided, and it may not make payment conditional on criminal or civil proceedings first being instituted or completed against the person concerned. A wording that requires a conviction before it responds does not meet the regulation. And because the minimum moves with the balance sheet, the sum insured must be recalculated at every annual general meeting rather than rolled forward.
The money-handling architecture in the Share Blocks Control Act raises the stakes. Section 13(3) allows levy contributions to be entrusted to a practitioner or an estate agent in that capacity, and section 15 governs the company's trust account and the investment of trust moneys. Where a third party holds the scheme's money, the fidelity wording has to name the right insurable persons and the right custody arrangements, and the board should hold the third party's own cover documentation on file.
Fidelity cover is not cyber crime cover. It responds to dishonesty by an insurable person inside the scheme, not to an external attacker who compromises the managing agent's email account and issues fraudulent banking details to shareholders, or who diverts a supplier payment. That is social engineering and funds transfer fraud, and it sits alongside the Protection of Personal Information Act 4 of 2013 obligations that attach to the shareholder, tenant, staff and visitor records the scheme holds.
Community Schemes Ombud Service Regulation 15(3) - the minimum fidelity cover formula:
- The scheme's investments and reserves at the end of its last financial year, plus
- 25 per cent of the scheme's operational budget for the current financial year
Source: Community Schemes Ombud Service Regulation 15(1) to (5); Share Blocks Control Act 59 of 1980 sections 13(3) and 15; Protection of Personal Information Act 4 of 2013.
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Director liability in a share block company, which is a layered exposure
A share block company is managed by a board of directors, not by sectional title trustees, and shareholders participate through company voting rights rather than through owner participation quotas. Section 12(1) reinforces that the board is not the developer's to control: members other than the share block developer have the right to appoint at least one director where they do not exceed ten in number, and at least two directors where they exceed ten. Section 12(4) makes those appointees part of the quorum for board meetings, subject to an adjournment proviso, so their participation cannot simply be scheduled around.
The liability those directors carry is layered in a way that is unusual. First, section 3 of the Share Blocks Control Act applies the Companies Act to a share block company, which brings the section 76 standard of directors' conduct, the section 77 personal liability provisions and the section 162 delinquency regime into play, along with the section 78 power to indemnify directors and purchase insurance for them where the Memorandum of Incorporation does not prohibit it. Second, section 19(2) of the Share Blocks Control Act adds a specific statutory liability for insurance failure that a sectional title trustee simply does not carry. Third, a shareholder can refer a dispute to Community Schemes Ombud Service adjudication at very low cost, which raises the frequency of challenges even where the merits are weak.
Directors' and officers' cover, sometimes sold as management liability, responds to defence costs, settlements and judgments arising from an alleged wrongful act committed in the capacity of a director or officer. When reviewing a wording for a share block company, confirm that it covers non-executive and unpaid directors, past directors and the managing agent's personnel where appropriate; that Community Schemes Ombud Service adjudications and other regulatory proceedings fall within the definition of a claim; how the retroactive date and any prior-acts exclusion are set, which matters greatly in schemes that have existed for decades; and how the wording responds to a claim founded on section 19(2) specifically, since that is a statutory liability rather than a common-law negligence claim.
Source: Share Blocks Control Act 59 of 1980 sections 3, 12(1), 12(4) and 19(2); Companies Act 71 of 2008 sections 76, 77, 78 and 162; Community Schemes Ombud Service Act 9 of 2011 (adjudication).
Read our directors' and officers' insurance guide →
An annual review checklist for share block boards
Share block insurance fails quietly, and it fails on paper before it fails at claim stage. There is no prescribed valuation cycle, no prescribed liability minimum and no statutory restriction on the average clause to expose a shortfall in the ordinary course. The gap surfaces when a fire or a burst pipe damages several units, when a shareholder is injured in a common area, or when a member refers the board to the Community Schemes Ombud Service and asks to see the resolution that authorised the sum insured.
Work through this before renewal, not after a claim:
- Locate the members' resolution that authorises the current insurance, confirm it is current, and put it back to the members if it is not
- Read the standard use agreement and confirm precisely which components each shareholder is responsible for, then check that both sides of the programme reflect that split
- Obtain or refresh an independent professional replacement valuation of the building, and index-link between valuations
- Reconcile the sum insured to that valuation and confirm that demolition, debris removal, professional fees and building regulation compliance costs are included
- Confirm the Sasria coupon is in force and that its sum insured tracks the underlying material damage sum insured
- Confirm the company is registered with the Community Schemes Ombud Service and that annual returns and levies are up to date
- Recalculate the Regulation 15 fidelity minimum from the latest audited reserves and approved operating budget, and confirm the wording does not require a conviction before payment
- Check that the levy fund set under section 13(1) actually funds both the insurance premium and the scheme's maintenance obligations, rather than one at the expense of the other
- Review the public liability limit against the size, age, height and occupancy profile of the building rather than accepting last year's limit by default
- Verify Compensation Fund registration and letters of good standing for the company and every contractor working on the property
- Confirm directors' and officers' cover is in place, names the correct entity, and would respond to a claim brought under section 19(2)
- Address outstanding risk improvements such as electrical certificates of compliance, fire equipment servicing and fire door integrity, water reticulation renewal, lift maintenance records and common-area lighting
- Minute the insurance decision, the information relied on and the reasoning, and hand the file over formally when the board changes
Source: Share Blocks Control Act 59 of 1980 sections 13 and 19; Community Schemes Ombud Service Regulation 15; the scheme's articles, use agreements and general meeting resolutions.
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COMMON QUESTIONS
Share block insurance questions, answered clearly.
Who owns the flat in a share block scheme?
The company does. Section 7(1) of the Share Blocks Control Act 59 of 1980 requires the main object of a share block company to be the operation of a share block scheme in respect of immovable property owned or leased by it. The resident owns shares in that company and, under section 7(2), holds a use agreement giving them the right to occupy and use a specified part of the property. There is no sectional title deed for the individual flat or house.
Can a share block shareholder insure their own flat?
Not the structure. The shareholder has no insurable interest in a building the company owns or leases, so a household buildings policy taken out over the flat itself is unlikely to respond. What the shareholder should insure is their contents, the fixtures and internal improvements the use agreement makes them responsible for, and their own personal liability. The correct starting point is the use agreement, because it is the document that sets the split.
Is insurance compulsory for a share block company in South Africa?
Two obligations apply. Section 19(1) of the Share Blocks Control Act requires the directors to ensure the immovable property is insured against damage in accordance with any relevant resolutions passed by the members at general meetings, which makes the members' resolution the operative standard. Separately, because a share block company is a community scheme, Community Schemes Ombud Service Regulation 15 imposes a mandatory fidelity insurance requirement with a prescribed minimum amount.
What happens if the directors fail to insure the property properly?
Section 19(2) provides that where the company or any member suffers damage as a result of a failure to comply with section 19(1), the persons who were directors at the time of the failure are jointly and severally liable to compensate the company or the member for the damage suffered. Section 19(3) provides the only defence: proof that the director was unaware of the failure and was unable to prevent it. This is a statutory personal liability with no equivalent in sectional title or homeowners association law.
How is share block insurance different from body corporate insurance?
A sectional title body corporate must insure the buildings to replacement value under section 3(1)(h) of the Sectional Titles Schemes Management Act 8 of 2011, obtain a professional valuation at least every three years under Prescribed Management Rule 23(3), carry at least R10 million public liability cover under Prescribed Management Rule 23(6), and is protected against the average clause being applied to the buildings as a whole by Prescribed Management Rule 23(1)(c). A share block company has none of those four statutory protections. Its standard is set by the members' resolution under section 19.
How is share block insurance different from a homeowners association?
In a freehold estate governed by a homeowners association, each owner holds title to their erf and insures their own dwelling, while the association insures the common property and infrastructure it owns or controls. In a share block scheme nobody owns an individual dwelling. The company owns the entire property and insures the whole building, and the shareholder's cover is limited to contents, internal improvements and personal liability. All three structures are community schemes for Community Schemes Ombud Service purposes.
How much public liability cover should a share block company carry?
There is no prescribed minimum for a share block company. Sectional title schemes must carry at least R10 million for any one claim and in total for any one period of insurance under Prescribed Management Rule 23(6), and that figure is a useful reference point rather than a ceiling. The appropriate limit depends on the number of units, the age and height of the building, occupancy and visitor volumes, whether any part is used commercially, and the scheme's claims history.
Who is responsible for maintenance in a share block scheme?
Because the company owns the property, responsibility is determined principally by the Share Blocks Control Act, the Companies Act, the company's Memorandum of Incorporation, the use agreement and the scheme's rules. The company generally maintains the property, funded by the levy fund established under section 13(1), but the use agreement may make individual shareholders responsible for internal repairs, for particular components, or for damage arising from their occupation.
Can a share block company borrow to fund a major repair?
Only with a substantial majority. Section 14(1) provides that a share block company may not increase its loan obligation or encumber any of its assets unless the increase or encumbrance has been approved by a resolution of at least 75 per cent in number of the members entitled to vote, holding in aggregate at least 75 per cent of the total votes of those members, excluding the share block developer in both counts. Section 14(2) then allocates the loan obligation across the members.
Can shareholders challenge the board's insurance decisions?
Yes. A share block company is a community scheme under section 1 of the Community Schemes Ombud Service Act 9 of 2011, so a shareholder who believes the company has failed to insure adequately, has misapplied insurance proceeds, or has unfairly allocated an insurance-related cost can refer the dispute to adjudication. That route sits alongside, and is considerably cheaper than, a direct claim against the directors under section 19(2), which is one of the practical reasons directors' and officers' cover matters in a share block scheme.
Can a share block scheme review its insurance before renewal?
Yes. A review before renewal can identify a missing or outdated members' resolution, an outdated replacement value, a non-compliant fidelity limit, a public liability limit that no longer reflects the building, an absent Sasria coupon, gaps between the policy schedule and the use agreements, and outstanding risk improvements that should be understood before insurance terms are sought.
